Defining Types of Mortgage Lenders
Mortgage Bankers
Mortgage Bankers are lenders large enough to originate loans, create pools of loans, and sell them directly to major investors like Fannie Mae, Freddie Mac, and Ginnie Mae. Companies that sell their loans to these larger mortgage bankers often also refer to themselves as mortgage bankers. Therefore, the label alone cannot reliably determine the size or strength of a particular lender.
Portfolio Lenders
A Portfolio Lender is an institution that lends and originates loans for itself, holding them in its own portfolio rather than immediately selling them on the secondary market.
- Independence: They don't have to obey Fannie/Freddie guidelines and can create their own rules for determining creditworthiness, allowing them to serve as niche lenders.
- Examples: They are typically larger banks and savings & loans.
- Seasoning: Once a borrower has made timely payments on a portfolio loan for over a year (the loan is "seasoned"), it becomes marketable and can be packaged and sold on the secondary market to free up capital. The original lender usually remains the servicer.
Direct Lenders
Direct Lenders are simply lenders that fund their own loans. They range in size from the biggest to the tiniest lenders. Banks and savings & loans use deposits, but most direct lenders use
warehouse lines of credit for funding. Direct lenders usually fit into the category of mortgage bankers or portfolio lenders.
Correspondents
A Correspondent is a company that originates and closes home loans in its own name, then sells them individually to a larger lender, called a sponsor. The sponsor acts as the mortgage banker, packaging and reselling the loan.
- The correspondent may fund the loan or the sponsor may.
- The sponsor usually underwrites the loan.
- This arrangement is similar to a mortgage broker relationship, but with a typically stronger relationship between the correspondent and sponsor.
Mortgage Brokers
Mortgage Brokers are companies that originate loans with the intention of brokering them to various lending institutions. A broker has established relationships with these companies (wholesalers). The
underwriting and funding take place at the larger institutions. Many mortgage brokers are also correspondents.
Wholesale Lenders
Most mortgage bankers and portfolio lenders also act as Wholesale Lenders, catering to mortgage brokers for loan origination.
- Wholesale divisions offer loans to mortgage brokers at a lower cost than their retail branches offer to the public.
- The mortgage broker then adds on their fee, resulting in a loan cost for the borrower that is usually about the same as if they went directly to the wholesale lender's retail branch.
Banks and savings and loans usually operate as portfolio lenders, mortgage bankers, or some combination of both.
Credit Unions usually seem to operate as correspondents, although a large one could act as a portfolio lender or a mortgage banker.
